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The Clock Is Ticking On Ron Johnson's J.C. Penney Debacle

Corporate turnarounds are difficult, and they take time. But ultimately management is evaluated on results, not ideas. How long will it be until J.C. Penney Chief Executive Ron Johnson needs to start showing more of the former, instead of promising the latter will pay off?

Already struggling to reverse the retailer’s decline, Johnson delivered another disastrous quarter Thursday, reporting an adjusted loss of $427 million. On a per-share basis, the loss of $1.95 was miles worse than the consensus Wall Street estimate.

Shares reacted in kind, sliding more than 15% after the bell Wednesday and the losses widened Thursday.

In some ways, one of Johnson’s failures may have been putting too much faith in the rationality of the American consumer. By eliminating sales, coupons and promotions, he figured the chain could offer competitive, everyday low prices, but he also eliminated the thrill of the chase. (How many of us have heard our a friend or family member rave rave about something they bought for 50% off?)

Now, J.C. Penney is hardly ignorant that there is a problem. At a recent investment conference, board member and staunch Johnson supporter Bill Ackman said that removing the “anchor price” was a mistake “because consumers don’t just know the right value.”

Attempting to transform the modern retail environment may be a noble endeavor, but it’s not one shareholders will, or should, put up with if signs of improvement remain absent.

After yet another disastrous quarter – read Abram Brown’s take on the rocky Q4 here – J.C. Penney finds itself with worsening numbers after burning through almost a billion dollars in cash. (Update: The cash issue was cast into sharper relief Thursday afternoon when S&P cut J.C. Penney’s credit rating, meaning that if the company does have to tap the debt market for additional cash it will have to pay steeper rates to borrow.)

Ackman, whose hedge fund Pershing Square Capital Management owned 17.8% of J.C. Penney at the end of 2012, griped that Johnson has been unfairly maligned by a media core out to knock the executive down a few pegs after his successes at Target and launching Apple’s retail strategy.

“The press has been unbelievably negative,” Ackman said at the Feb. 13 Harbor Investment Conference.

But even the staunchest Johnson backer couldn’t say the leash is shortening.

“We’ll know by the end of this year,” Ackman said, calling it a “tipping point.” If the strategy isn’t working – which he defined as sales stabilizing – J.C. Penney will stop spending cash and rethink its options. The company “won’t pour billions into a strategy that’s not working,” he said.

J.C. Penney is certainly heading in that direction though, burning through $903 million in cash in its last fiscal year according to the financials it filed Wednesday.

As for Johnson’s reversal of sorts – J.C. Penney has brought back some promotions but far fewer than the 580 per year the company used to run — Ackman spun that into a positive too, calling it “the sign of a great CEO.”

He has a point, to an extent. Ignoring evidence that disproves your philosophy is no way to go about business. But one wonders whether it would have been more valuable to test the strategy of cutting out promotions and sales first, rather than eliminating them before backtracking later?

“We will offer sales each and every week,” Johnson said on a conference call following Thursday’s results, “but we’ll do it differently than we did in the past.”

Equally, if not more important, than Johnson’s realization that sales and coupons have some value, is whether the customers are still there to be drawn back into J.C. Penney’s stores. Because while Johnson’s chain saw same-store sales drop 25% in 2012, rival Macy’s was enjoying a modest 3.7% increase, which hardly seems coincidental.

The retailer has enjoyed better results in the stores it has transformed into its shop concept — essentially stores within a store for different brands or categories — but if J.C. Penney keeps hemorrhaging red ink, the ability to expand that transition across its footprint is likely to come under pressure.

Shares of J.C. Penney slumped 16.7% to $17.62 in the first five minutes of trading Thursday morning.

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Actually, the day JCP hired DeGeneris as their spokesperson marked the day after which I will NEVER shop at JCP again. DeGeneris is way too Liberal, and clearly hates the conservative middle class. I believe I am duty bound to boycott everything she is involved with in any matter. Again, I will never shop at JCP again under any circumstance. Johnrmayo at yahoo dot com.

I recall visiting the J.C. Penney store back in the early 70′s in the city where I grew up. Even then, the store was drab, boring and uninspiring. In the 80′s and 90′s J.C. Penney updated it’s image as they began to anchor shopping malls. However, as the the retail industry entered the 21st century, stores like J.C. Penney and Sears appeared to be relics of a bygone era. Perhaps it’s time for them to go. Remember Montgomery Ward’s? Yeah.

Unfortunately for Penney’s shareholders, the board made a disastrous choice with Ron Johnson. What they needed was a good merchant, not someone who’s head was blown out of proportion because of success at Apple. A trained monkey could have done that job well.

I am not sure why people expected results from Ron Johnson’s total turnover idea? in a retail world, you can not never make that change by losing your core customer, or ignoring the people fact. Leadership comes from top to bottom, and in any successful turnover you focus on your people before you put to focus on changing the ” look ” of the store as they are the one who carry or make the change work. And everyday value price idea even as great as it sounds can only be implemented gradually as it tends to cater another market share ( no coupon customer) . I think it is somewhat too late to allure the core customer lost in this transition.

The pricing and lack of sales are not the main cause of JC Penney’s downfall. The bigger issues are the lack of merchandise and the poor treatment of customers and employees. Mr. Johnson got rid of numerous brands that were very popular and drove sales (i.e. Cabin Creek, St. John’s Bay, Ambrielle, etc.). He kicked the loyal customers to the curb in pursuit of fantasy customers who could care less about JC Penney. He got rid of professional employees who actually cared about the customers and the company. Those three things did far more damage than his removal of sales and promotions. If the merchandise available is not what customers want, and there are no customers coming to the store anyway, then the company is doomed. Mr. Johnson has destroyed the company. RIP JC Penney.

Ron may be out, and so are the low prices Ron brought the store. With the return of coupons, which is what the customers wanted, prices are on there way up to compensate for the discount customers get with the coupon. Where is the savings. I have worked for JCP for over 5 yrs. In the past I seldom shopped at JCP. I am middle age woman in my late 50′s and even for my taste the clothes were old fashioned and boring. Ron brought the younger generation to JCP with new clothing lines, and more modern store. It is a double edge sword, the coupons are back, but you have higher prices, you will get your older generation clothing lines back, but you lose the group that the new lines created. The younger set, is the future. You have to keep up, stay fresh and new, or the company will go the way of stores like Montgomery Ward. We will have to wait and see what the future holds!